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Out of Balance

Columnist: Bob Andrews
July, 2013 Issue
Columnist

Bob Andrews
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Yin and yang is an interesting philosophy that posits the coexistence of opposites, with yin representing passive-dark-cold-wet and yang representing active-light-heat-dryness. It makes me wonder what happens when these opposite forces aren’t in balance. But wait! We know what happens. It’s called the never-ending fiscal mess in Sonoma County, where supervisors are very adept at spending and borrowing (yin) and not so good at saving money (yang).
 
As I’m writing this column in May, Sonoma County supervisors are in an absolute frenzy to get cities to sign up for the grand electricity venture called Sonoma Clean Power (SCP). The identified startup costs (so far) total $24 million. Leading the charge is the Sonoma County Water Agency, which is spending money and staff time—like water, so to speak—to convince various city councils to make quick commitments to this “community choice aggregation (CCA) program.”
 
Never mind that electricity rates under SCP aren’t fixed or even reliably predicted to be higher or lower than PG&E’s rates, or that SCP creates yet another expensive county bureaucracy of board members and employees with fabulous pay and benefits, or that the financial risks to the county and cities aren’t exactly known, or that we also don’t know whether SCP will provide the same special rates that PG&E does for low-income individuals under its CARE program. Never mind that the key assumption of SCP—“cleaner” electricity—may be false, because the program allows the use of a flim-flam called “Category 3 Renewable Energy Certificates” to create an illusion of cleanness.
 
Is there anything else the supervisors might think about rather than creating a huge power bureaucracy? Oh, yes, there’s that pesky public employee pension problem and that other billion-dollar pothole known as Sonoma County roads. Thinking of pensions, you can experience yin and yang by reading the Sonoma County Employees’ Retirement Association (SCERA) Actuarial Valuation as of Dec. 2012, which was presented to and approved by the SCERA board on May 1, 2013. Large parts of the valuation are sleep-inducing (yang). Example: “The basic contribution rate is determined so that the accumulation of a member’s basic contributions made in a given year until a certain age will be sufficient to fund an annuity at that age that is equal to 1/100 of Final Average Compensation for General and Safety members.” Yawn.
 
But the specifics of the valuation are just plain frightening (yin). In one year, the unfunded liability of the county’s pension trust increased 49 percent, from $353 million to $527 million. The county’s average pension contribution rate is set to increase 25 percent, which will add almost $14 million to annual county costs. With these increases, the county’s total annual obligation for funding of retiree benefits, including pensions, Social Security, pension obligation bonds and health care, will equal an amount more than 50 percent of covered payroll of $300 million. We must also remember that, on top of an unfunded liability of $527 million, the county owes more than $500 million on the pension obligation bonds. Thus, the total pension “pothole” is more than $1 billion.
 
The actuarial valuation shows what happened after supervisors adopted massive retroactive pension enhancements effective in 2004. At the end of 2005, there were 4,230 county employees and 2,939 retired employees or their beneficiaries. Over the next seven years, the number of actual workers declined from 4,230 to 3,620, a decrease of 14 percent. During the same seven years, there was an increase in retirees from 2,939 to 4,258—up 45 percent! Yes, Sonoma County has more retirees than current workers.
 

Incentivize employees to retire and they will

Have our supervisors spent lavishly (yin) to make county jobs attractive? Yes, they have. The actuarial report shows that average pay for general employees is more than $80,000. Average pay for public safety employees is almost $98,000. Benefits are also excellent. Sonoma County has the best retirement formula for general employees, tied with three other counties, and the best retirement formula for public safety employees. Checking the county’s website, I found that the county provides newly hired “management” employees with 15 days of paid vacation, additional “annual paid leave” of 7.5 days, annual sick leave of 12 days with no limit on accumulation, and 11 paid holidays plus 17 hours of “annual compensatory time.” That’s close to 10 weeks paid time off each year! The county makes a 4.5 percent-of-pay contribution to a deferred compensation plan, and the county pays for vision and dental coverage, plus a long-term disability plan. The county pays $500 per month toward health coverage, plus a cash allowance of $600 per month granted to all employees (including supervisors) in 2008. The county pays for life insurance (providing a benefit of two times annual salary) plus $950 per year for job-related professional development. And there’s a “cafeteria plan” for pre-tax health and dependent care expenses. Whew! The spending/bad news/yin side of things is tough.
 
On the savings/good news/yang side of things, it’s a “yes…but” situation. Yes, investment markets are surging, which may bode well for future actuarial valuations, but this is always uncertain. Yes, the board of supervisors narrowly got its largest union, SEIU, to agree with changes that will eliminate final-year-of-employment pension spiking, but the supervisors haven’t negotiated the same concession from public safety employees. Yes, anticipated changes in actuarial assumptions will save money some years down the road, but total annual pension costs for Sonoma County—even before big increases projected in this actuarial valuation—are already 10 times higher than they were before retroactive pension enhancements were adopted by our supervisors. These are the same supervisors who want to electrify us with Sonoma Clean Power, predicting, so to speak, all yang and no yin. Think again, grasshopper.


 

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